French presidential candidate Jean-Luc Melenchon proposes debt cancellation

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French presidential candidate Jean-Luc Melenchon of the France Unbowed party (LFI) proposed that the Bank of France cancel the 18% of the country's public debt that it currently holds. This proposal aimed to reduce France's public debt ratio, which is currently over 116% of GDP, to create space for further public spending. The call sparked significant backlash from Prime Minister Sebastien Lecornu, who characterized the plan as fraud and warned of negative impacts on households and businesses. While some, like investment banker Matthieu Pigasse, argued the cancellation could occur without financial impact, critics including former IMF chief economist Olivier Blanchard labeled the proposal irresponsible and potentially damaging to market confidence.

Consequences

If enacted, the proposal could lead to a loss of investor confidence and force the government to face significantly higher interest rates on future borrowing, according to warnings from Prime Minister Lecornu. Additionally, experts indicated that such a move would force France to abandon the euro and leave taxpayers responsible for covering the central bank's resulting financial losses.

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